Innovations and StrateLogistics and Supply ChLogistics and Supply Ch

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Wolfgang Kersten, Thorsten Blecker and Christian M. Ringle (Eds.)

Innovations and Strate Logistics and Supply Ch Logistics and Supply Ch

egies for

hains

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HICL PROCEEDINGS

Editors: Kersten, W., Blecker, T. and Ringle, C.M. 2015 Innovations and Strategies for Logistics and Supply Chains.

ISBN 978-3-7375-6206-5

Sustainability in Logistics and Supply Chain Management.

ISBN 978-3-7375-4057-5

Operational Excellence in Logistics and Supply Chains.

ISBN 978-3-7375-4056-8

Editors: Kersten, W., Blecker, T. and Ringle, C.M. 2014

Innovative Methods in Logistics and Supply Chain Management.

ISBN 978-3-7375-0341-9

Next Generation Supply Chains. ISBN 978-3-7375-0339-6 Editors: Kersten, W., Blecker, T. and Ringle, C.M. 2013

Pioneering Solutions in Supply Chain Performance Management.

ISBN 978-3-8441-0267-3

Sustainability and Collaboration in Supply Chain Management.

ISBN 978-3-8441-0266-6

Editors: Kersten, W., Blecker, T. and Ringle, C.M. 2012 Managing the Future Supply Chain. ISBN 978-3-8441-0180-5 Pioneering Supply Chain Design. ISBN 978-3-8441-0181-2 Editors: Blecker, T., Kersten, W. and Jahn, C. 2011

Maritime Logistics in the Global Economy. ISBN 978-3-8441-0072-3 International Supply Chain Management and Collaboration Practices.

ISBN 978-3-8441-0071-6

…find more proceedings on hicl.org/publications

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Proceedings of the Hamburg International Conference of Logistics (HICL) 20

Prof. Dr. Dr. h. c. Wolfgang Kersten Prof. Dr. Thorsten Blecker Prof. Dr. Christian M. Ringle (Editors)

Innovations and Strategies for Logistics and Supply Chains

Technologies, Business Models and

Risk Management

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Series Proceedings of the Hamburg International Conference of Logistics (HICL)

Volume 20

Series Editors Wolfgang Kersten and Thorsten Blecker Coverdesign Moritz Petersen

Coverphoto Nick Scheerbart / unsplash.com/nck ISBN (print)

ISBN (online) ISSN (print) ISSN (online)

978-3-7375-7805-9 978-3-7375-4059-9 2635-4430 2365-5070

Layout Pascal Freigang, Beverly Grafe, Julian Schäfer and Henning Schöpper

Copyright

Cover Nick Scheerbart / unsplash.com/nck

Contents The contents (pages 1 to 598) of this book are licensed under the Creative Common Attribution-ShareAlike 4.0 International License. To view a copy of this license, visit

https://creativecommons.org/licenses/by-sa/4.0/.

This book can be downloaded at HICL (hicl.org) or at the TUBdok – Publication Server of the Hamburg University of Technology

(tubdok.tub.tuhh.de), ISBN (online): 978-3-7375-4059-9

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Preface

The HICL-Conference celebrates its 10th anniversary, indicating major interest in the research fields of supply chain management and logistics.

Thanks to the large number of outstanding research contributions to this year’s conference, the proceedings comprise three volumes. They are ded- icated to make recommendations for new approaches and solutions that enable companies to cope with current and future challenges in supply chains and logistics.

The first volume of the 2015 conference addresses innovative and technology-based approaches for logistics and supply chains. It presents business models and investment options for enhanced strategic decision making as well as recent approaches for supply chain risk management.

We would like to thank the international authors for making this volume possible. Their research papers contribute to logistics and supply chain management research. This book would not exist without good organization and preparation. We would like to thank Niels Hackius and Irene Sudy for their efforts to prepare, structure, and finalize this book. We would also like to thank Pascal Freigang, Beverly Grafe, Julian Schäfer, and Henning Schöpper for their contributions to the print layout.

Hamburg, August 2015

Prof. Dr. Dr. h.c. Wolfgang Kersten Prof. Dr. Thorsten Blecker Prof. Dr. Christian M. Ringle

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Innovative and I.

Technology-based Approaches for Logistics

and Supply Chains

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Innovation Contests in Logistics

Birgit von See and Katharina Kalogerakis

Logistics is traditionally driven by operational demands. Therefore innovations are mainly based on direct customer requests. However, logistics service providers (LSPs) have started to realize the importance of proactive innovation to improve competitiveness. As they often lack internal competences and capacities, the open innovation paradigm (e.g. innovation contests) constitutes a promising way to improve their innovativeness.

The aim of this paper is to evaluate the use of innovation contests as an open innovation initiative for LSPs. Opportunities and challenges for LSPs to conduct an innovation contest are analyzed. An in-depth case-study of the company Hermes, a Ger- man parcel distribution service provider that has successfully run an innovation contest, is used to derive success factors.

Results indicate that LSPs can benefit from innovation contests, if they consider certain success factors. This study expands the discussion of open innovation to the logistics sector and supports LSPs in evaluating the potential of innovation contests for their business context.

Keywords: Innovation Contest, Logistics, Success Factors, Case Study

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1 Introduction

The development of new service concepts enables LSPs to increase customer satisfaction and strengthen their competitiveness (Wagner, 2008, p.215; Wagner and Busse, 2008, p.2). Due to the fact that services cover specific characteristics, their development differs from traditional product development and requires adapted innovation management processes (Brentani, 1989, p. 256f.; Gallouj and Weinstein, 1997, p.540). The production of services usually requires the participation of customers. Further- more, the presentation of prototypes to convince customers of new developed services is difficult. Hence, customer integration can be seen as a crucial success factor in the process of service innovation.

By now, systematic innovation management approaches in logistics are missing (Kersten, Seidel and Wagenstetter, 2012, p.31). Moreover, empirical studies demonstrate that LSPs in general have deficits in innovation management (Wagner, 2007, p.14). Logistics business is characterized by operational day-to-day business and fierce price competitions. Therefore, methodological expertise and resources needed for the creation of radical innovations are often lacking (Wagner and Busse, 2008, p.7).

Open innovation seems a promising way to overcome the barriers LSPs are facing (Kalogerakis and Wagenstetter, 2014, p.44). The concept of open innovation includes the integration of external resources into the innovation process (Chesbrough, 2006). Thereby, development time and risks can be reduced while the innovativeness of a company rises (Manceau, et al., 2012, p. 46; Poetz and Schreier, 2012, p.251ff.). Originally, the concept of open innovation has been described for the development of tangible products, but has further been expanded to open service innovation (Chesbrough, 2011).

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In general, due to their nature service industries are far more open than manufacturing companies (Mina, Bascavusoglu-Moreau and Hughes, 2014, p.862). However, opportunities and challenges of open innovation in the logistics sector are so far not thoroughly understood. A first investigation has shown that the integration of customers as well as technology providers in innovation projects is important for LSPs (Kalogerakis and Wagen- stetter, 2014, pp.43f.). Nevertheless, in the context of logistics, open innovation methods need further examination and advancement.

Innovation contests provide an opportunity to integrate external resources into the innovation process and can be classified as an inbound method of open innovation (Hjalmarsson, et al., 2014, p.5; Kalogerakis and Wagenstetter, 2014, p.31). Such contests can be traced back several hun- dred years (Adamczyk, Bullinger and Möslein, 2012, p.335; Boudreau, La- cetera and Lakhani, 2011, pp.843f.). Nevertheless, supported by the development of web 2.0, they recently gained further attention and application (Bullinger and Möslein, 2010, p.1; Füller, Hutter and Hautz, 2013, p.242). In the German logistics sector, innovation contests have already been run by key players like Deutsche Post DHL, Hermes as well as Lufthansa Cargo. The aim of this paper is to analyze under which circumstances innovation contests in logistics deliver valuable benefit.

In the following section, traditional innovation management processes in logistics are analyzed and the concept of innovation contests is introduced.

The research approach described in section three includes a focus group workshop and a case study analysis. Findings are described and analyzed in section four with emphasis on opportunities and challenges as well as

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success factors. The paper concludes with a discussion of the results, limitations, and opportunities for further research.

2 Theoretical Background

2.1 Innovation Management in Logistics

Innovation management in logistics is triggered by increasing competition.

Although megatrends like globalization and outsourcing offer growing demands in logistics (Anderson, et al., 2011, p. 97; Ellinger, et al., 2008, p.353) only low profit margins exists, because new LSPs are constantly entering the market. In this context, innovations provide LSPs a way to positively distinguish themselves from competitors to increase their market share.

However, empirical studies show that practical implementation of innovation management in logistics is lagging behind (Kersten, Seidel and Wagen- stetter, 2012, p.31; Wagner, 2007, p.14). A field study by Göpfert and Well- brock (2014, p.18) reveals that hurdles for efficient innovation management exist due to time and cost restrictions. Logistics innovations are usually developed ad hoc (Göpfert and Wellbrock, 2014, p.8) whenever customers seek for specific solutions (Burnson, 2013, p.64; Wallenburg, 2009, p.78).

This reactive approach is often hampered by time pressure and thus far more difficult to manage than a proactive approach (Oke, 2008, p.21). Be- sides, proactive innovation approaches enable LSPs to develop standard- ized solutions that can be sold to more than one customer.

Without any doubt the integration of customers into the innovation process seems to be a necessary step to improve the performance of LSPs (Busse and Wallenburg, 2011, p.200f.; Kalogerakis and Wagenstetter, 2014, p.43).

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This is especially important as innovation activities in logistics aim at improved or even new services. Furthermore, according to Flint et al. (2005, pp.116f.) customer value constitutes an important element in the innovation process. Due to dynamic changes, integration of customers is essential in order to determine their perceptions and concerns. The identification of future customer needs in logistics can either be based on the demands of multiple customers in order to generate broad knowledge or on direct interaction with single customers aiming at a deeper under-standing of their needs (Mota Pedrosa, Blazevic and Jasmand, 2015, p.328). Findings from Wagner and Sutter (2012, p.954) further indicate that LSPs profit from integrating customers, who seek for new solutions, into innovation management practices.

In summary, innovation management of LSPs is hindered by limited resources and the need to successfully integrate customers in the innovation process. Innovation contests as inbound open innovation initiatives constitute a promising way to overcome these hurdles.

2.2 Innovation Contests

Innovation contests aim at integrating innovative users and their expertise into the innovation process (Füller, Hutter and Hautz, 2013, p.241). They can be defined as "IT-based and time-limited competitions arranged by an organization or individual calling on the general public or a specific target group to make use of their expertise, skills or creativity in order to submit a solution for a particular task previously defined by the organizer who strives for an innovative solution" (Adamczyk, Bullinger and Möslein, 2012,

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p.335). Especially through the widespread adoption of the internet, innovation contests have become popular and constitute an essential element of open innovation activities. This intensification of use during the last twenty years led to several and diverse contributions in scientific research, but sufficient understanding is still missing (Bullinger and Moeslein, 2010, p.1).

While in literature as well as practice different terminologies like "innovation tournament" (Terwiesch and Ulrich, 2009), "idea competition" (Mor- tara, Ford and Jaeger, 2013), or "idea contest" (Füller, Hutter and Hautz, 2013) are used, the general term "innovation contest" is applied in this paper. This term is widely spread (Adamczyk, Bullinger and Möslein, 2012, pp.

338f.) and covers contests implemented during the entire innovation process (Hallerstede and Bullinger, 2010, p.2).

Mortara, Ford and Jaeger (2013, p.1564) note that innovation contests have several intersections with crowdsourcing, but can be distinguished due to their innovation focus. While crowdsourcing activities not necessarily focus on innovation topics (e.g. Amazon Mechanical Turk as a platform to out- source small and simple tasks to a crowd), innovation contests aim at solving innovation related questions by a crowd. The general process of crowdsourcing can be classified into five different phases: preparation, initiation, implementation, evaluation and utilization (Gassmann, Friesike and Daiber, 2014, pp.78ff.) as depicted in Figure 1.

Initia- tion

Imple- mentation

Evalua-

tion Utiliza- Prepa- tion

ration

Figure 1 Phases of a crowdsourcing process (modelled after Gassmann, Friesike and Daiber, 2014, p.78)

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Based on a literature review, Bullinger and Moeslein (2010, pp.3f.) identified ten elements (media, organizer, task specificity, degree of elaboration, target group, participation, contest period, reward/ motivation, community functionality and evaluation) recommended for the design of innovation contests. Subsequent research has primarily been focusing on these elements as well as their interrelations (Bayus, 2013; Boudreau, Lacetera and Lakhani, 2011; Zheng, Li and Hou, 2011; Armisen and Majchrzak, 2015). Wal- ter and Back (2011, p.9), for example, further investigated effects design elements have on the quality (answer type and market maturity) and quantity (rewards, duration, market maturity and brand-strength) of submitted ideas.

Apart from design elements, only a few contributions focus on the challenges of innovation contests (Wikhamn, 2013; Füller, Hutter and Hautz, 2013, p.243ff.) or crowdsourcing (Gassmann, Friesike and Daiber, 2014, pp.84ff.). These include efforts, motivation, compensation, and legal aspects (Gassmann, Friesike and Daiber, 2014, pp.86f.) as well as quality and evaluation of submitted ideas (Füller, Hutter and Hautz, 2013, p.243;

Wikhamn, 2013, p.139ff.).

So far, research on innovation contests has been done mostly independently from industrial sectors like IT, manufacturing or logistics. Fur- thermore, although case studies for service companies exist (Pfeifer and Gebauer, 2013), little is known about differences between innovation contests with a service focus and product oriented innovation contests (Schuhmacher and Kuester, 2012).

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As innovation contests have rarely been conducted with a logistics focus, experiences as well as research results are limited. In a previous study conducted in mid-2014, experiences of LSPs with innovation contests were identified. First results are described by Kalogerakis and Wagenstetter (2014, pp.42f.). Although innovation contests are generally well known, none of the interviewed experts had actually conducted one within the company. Managers of LSPs are afraid of problems concerning intellectual property (IP), especially when innovation contests are related to customer specific requests. Nevertheless, some opportunities are also mentioned, as for example PR (public relation) effects and integration of technology providers within a contest.

3 Research Approach

The research design is based on the results of the previous study described above. In order to enter this new field of research a qualitative approach was chosen (Myers, 2013, p5f.). It uses two sources of empirical data - a focus group and a case study (cf. Figure 2).

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First, in order to deeper analyze opportunities as well as challenges of innovation contests in logistics a focus group workshop was conducted. This group included a typical amount of seven members who share a similar background (Flick, 2006, p.193) as managers of LSPs or logistics managers from manufacturing companies. In a second step, the Hermes innovation contest "Getting, Delivering…what else" was analyzed as a case study (Yin, 2014) of an already realized innovation contest in logistics. The aim of this case study is to further derive requirements for innovation contests in logistics based on lessons learned. The Hermes case study is premised on a content analysis of secondary data followed by semi-structured interviews with two main internal actors of the contest. From the data captured success factors are deduced.

Case Study

• Semi-structured interviews

• Content analysis of secondary data Focus Group Workshop

• 7 LSPs and logistics managers of manufacturing companies

Opportunities and Challenges Success Factors Previous study (Kalogerakis and Wagenstetter, 2014)

Figure 2 Research design

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4 Results

4.1 Focus Group Workshop

The previous study (Kalogerakis and Wagenstetter, 2014, p.42f.) indicated that innovation contests in logistics are rare. Managers of LSPs have, so far, seen more risks than advantages concerning the realization of an innovation contest. Based on this rather reluctant attitude towards innovation contests in logistics a focus group workshop was hold. As introduction, some general information about open innovation and successful examples of innovation contests were presented to the participants of the focus group workshop. Afterwards, the participants were asked what kind of opportunities and challenges LSPs could expect from this open innovation effort. While opportunities are recognized in terms of innovation and PR aspects, challenges (e.g. invested resources, quality of ideas, reputation) dominated the discussion (cf. Figure 3).

Several opportunities are identified concerning the innovative output of innovation contests. As expected from an open innovation initiative, participants of innovation contests bring new perspectives into innovation activities of a company. Hence, it is believed that truly new "out-of-the-box"

ideas that are new to the business can be submitted. Thereby, LSPs can gain first mover advantages resulting in an improved competitive position.

Furthermore, positive PR effects are anticipated. By conducting an innovation contest the LSP can signal to its customers that it is seeking dialogue with them and position itself as an innovative company.

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However, several challenges were also identified. First, doubts exist concerning the quality of incoming ideas. Diverse instruments were discussed that might help to influence the qualitative output of ideas, e.g. which participants to integrate and which incentives to provide. Furthermore, it was discussed what kind of resources are needed to transform an innovation contest into a positive endeavor. Constantly monitoring the contest results increases resources needed, but will probably also increase the usefulness of incoming ideas. A design challenge by the fast-moving consumer good company Henkel for example has shown that contests might lead to PR dis- asters (Keinz, Hienerth and Lettl, 2012, pp.24f.). Once the idea contest is implemented, the company has to be willing to realize the winning idea.

Therefore, thorough preparation as well as monitoring of the contest are seen as essential activities.

Challenges Quality of Ideas

• Decision on participants

• Decision on incentives

• Decision on steering vs.

freedom of ideas Reputation

• Results unknown

• Willingness to implement Resources needed

• Necessary resources for monitoring

• Idea selection and assessment Opportunities

Innovation

• Identification of “out-of- the-box” ideas

• Deployment of “first- mover” advantages

• Possibility to implement or combine specific elements of ideas

• Generating new ideas and innovation fields PR / Customer Orientation

• Positive PR effects

• Signaling dialogue to externals

• Creating needs

Figure 3 Opportunities and challenges of innovation contests identified by logistics focus group

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4.2 Case Study - Hermes Innovation Contest

The German 2C (to consumer) parcel distribution service provider Hermes Logistik Gruppe Deutschland (Hermes) launched an innovation contest at the beginning of 2013 asking for new ideas about services that facilitate their customers' daily life. The aim of this contest was to discover sugges- tions for new business models. Hermes incorporated an intermediary, the Innovationskraftwerk, who provided a platform with an existing community of 4.000 innovators and creative people. Additional participants were acquired by Hermes via website and newsletter announcements. In order to attract many participants, incentives in the form of monetary and imma- terial rewards were given. In total 377 ideas were submitted in a period of eight weeks. After an intensive assessment and selection process, the ten most promising ideas were judged by a jury, consisting of internal as well as external experts. The final winning idea "Hermes Store In: storage and simultaneous packet delivery" was further developed by a business incubator to a new self-storage concept. By now, the resulting "Send & Store"

service has been implemented as a subsidiary of Hermes.

In the following sub-chapters an in-depth analysis of the Hermes innovation contest is provided adhering to the phases of a crowdsourcing initiative (cf. Chapter 2.2). Success factors for each of the phases were derived together with Hermes from a retrospective point of view.

4.2.1 Preparation and Initiation Phase

The preparation phase of the innovation contest started soon after formal- izing innovation management at Hermes. This process was supported by

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consultants of the Otto Group which is the parent company of Hermes. In- vestigations, trend analysis and customer insights provided fields for future innovation activities. Nevertheless, the question was raised which new and rather open concept of idea generation could be used in order to expand the Hermes innovation toolbox. The decision in favor of an innovation contest was supported by the management board.

The aim of the contest was to generate new business and service ideas as well as to test this new feature. In order to conduct the innovation contest, no additional organizational structures had to be provided. Nevertheless, one Hermes employee was assigned fulltime to the topic, supported by two consultants from the Otto Group. Furthermore, the innovation contest platform Innovationskraftwerk was chosen as a professional partner to realize the contest. Among other reasons this platform was seen as a suitable partner, because its community is mostly situated in Germany just like most of Hermes customers are.

A main task of the initiation phase was the choice of an adequate question to be addressed in the contest. Therefore, Innovationskraftwerk organized a workshop with Hermes in order to decide on an adequate question and a way how to promote the innovation contest. Key questions within this workshop focused on the scope of the question and its link to logistics. As previous customer insights had shown, the shipping process is often seen as a black-box. Hence, the focus of the contest was decided to be on services instead of process innovations. Developing an appropriate question for the contest turned out to be a difficult task, because conflicting objec- tives existed. On the one hand, openness for new ideas was sought and on the other hand submitted ideas should not drift too far away from the core

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business of Hermes. Finally, the question was formulated very open in order to enable a maximum of creativity without excluding ideas by setting the boundaries too tight. Pictures were integrated to stimulate participants' creativity. The contest was realized as a half-open variant - only reg- istered community members were able to read the whole description of ideas - in order to minimize the risk of knowledge transfer to competitors.

4.2.2 Implementation Phase

The implementation phase started with the launch of the innovation contest on the Innovationskraftwerk platform in February 2013. Supported by previous marketing initiatives in terms of customer newsletters, promotion on websites, social media as well as via existing networks (e.g. universities) already on its first day 88 ideas were submitted. During the contest efforts for monitoring and moderation were necessary to ensure high quality as well as quantity of submissions. New ideas were commented on a daily basis by moderators from either the intermediary or Hermes. Although there was an option for participants to comment on ideas posted by others, this was not extensively used by the community.

Already during implementation phase a pre-assessment and selection process was initiated. The preselection included the following criteria: com- prehensibility, company fit, novelty and doubling. Community assessment was enabled through a like-function. Weekly winners were voted by the community and awarded with soccer tickets. In total 377 ideas were submitted during the eight weeks of the contest phase by a core group of 129 participants.

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4.2.3 Evaluation and Utilization Phase

Preselection already during implementation phase guaranteed that ideas which would not fit with Hermes' business model (19 % of the ideas, e.g.

passenger transport) or already existing services were excluded. During the subsequent evaluation phase, ideas were categorized as improvement sug- gestions (18.5 %), marketing concepts (17.5 %), and service/ product/ business ideas (64 %). Ideas in the field of receiver services, food logistics, packaging, lending models, and data mining concepts dominated. An intensive screening of the submitted ideas was conducted to further analyze whether parts of ideas could be used as an input for innovation management at Her- mes. Due to the fact that many ideas were new to Hermes, intensive research was necessary in order to analyze their potential. A further assessment concerning strategic importance and feasibility resulted in ten top ideas. These ideas were then assessed by the official jury of the contest. The jury, consisting of representatives from Hermes and the Otto Group plus an external expert, evaluated their potential and customer value.

Finally, the winning ideas were officially announced and rewarded with monetary prizes as well as a hub visit. The third price "Hello Neighbor" is a bonus card to reward customers receiving packages for their neighbors with free shipping. In contrast, a product oriented idea won the second prize. The "Hermes Inflatable Package (System)" challenges the problem of unused packaging volume and wasted material in parcel shipping. The winning idea was the service concept "Hermes Store In: storage and simultaneous packet delivery". This concept offers customers the possibility to store boxes temporarily and book individual pick-up and delivery services.

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The three winners were invited to present their ideas at an awarding ceremony. During the ceremony Hermes informed them about subsequent utilization and further development of their ideas.

After further internal evaluation, 19 ideas were assigned to the Hermes In- novation Roadmap and given to special departments of Hermes. Additional 10 ideas were taken into the innovation pipeline of the central innovation management team. This team, however, first focused on the winning idea.

As internal standard processes seemed not adequate for a fast implementation of the new business concept, an incubator was chosen to realize the idea. LiquidLabs, an incubator of the Otto Group, provided the opportunity to start fast and independently from formal implementation processes.

The idea was thus implemented as a lean-startup meaning that a "minimum-viable-product" was tested and gradually expanded with additional features. In the end, the idea was transferred into a business model within a quarter of a year.

Hermes not only utilized the ideas submitted but profited from the whole innovation contest in several instances. Lessons learned are used for further open innovation initiatives, e.g. on co-creation processes using innovation workshops with external experts.

4.2.4 Success Factors

The analysis of the Hermes innovation contest underpins that challenges in conducting an innovation contest exist. Following certain success factors (cf. Figure 4) derived from the case study as well as formulated by Hermes challenges can be mastered.

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Preparation and initiation of an innovation contest can be seen as crucial steps. These phases include the decision about central questions: Whom are we going to involve? What question are we going to raise? Selection and formulation of an adequate question is challenging (Sieg, Wallin and Krogh, 2010, pp.6f.; Hallerstede, 2013, pp.193ff.). Especially in logistics, these questions need to be discussed in detail. As process experience is missing, customers often only see the result of the service and respectively tend to complain whenever problems occur. Investing adequate effort in problem formulation and visualization of the question can therefore be seen as a key success factor, which was also identified by Lüttgens, et al. (2014, pp.355f.).

Based on the experience of the interviewees involving a multi-disciplinary team consisting of representatives from different departments might help to formulate an adequate task for the innovation contest. Furthermore the described process helps in self-reflecting what exactly the aim of the contest is.

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Figure 4 Success Factors in Innovation Contests derived from the Hermes Case Study

• Taking time and effort in formulating and visualizing question

• Limiting question to a certain field of desired innovation

• Involving different departments

• Choosing the right platform / intermediary (based on community, structure of platform, interaction features, …)

• Selecting an appropriate setting (multi-stage- setting)

• Creating emotionality for participants

• Building on experience of intermediary

• Focusing on interaction with participants

• Intensifying community management

• Gathering information and pre-assessing ideas

• Planning sufficient time and resources for assessment of ideas

• Integrating an interdisciplinary team and different departments into assessment of ideas

• Additionally using community assessment aspects Prepa-

ration

&

Initia- tion

Imple- tationmen-

Evalua- tion&

Utiliza- tion

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After the goal is clear, an adequate platform and setting for the contest has to be chosen. For the execution of the contest involvement of competent partners e.g. intermediaries with broad experience and knowledge in community management seems to be beneficial. In order to choose the right platform an assessment of different options concerning experience, community functionalities and participants should be made.

Using a multi-stage setting is suggested: In a first step ideas are submitted by a crowd and in second step further developed within a smaller group of experts. Terwiesch and Xu (2008, pp.29f.) discuss a similar setting and sug- gest adapted awarding structures.

Real time interaction with participants during the implementation phase helps to improve submitted concepts and to overcome the challenge that ideas seldom build on previously submitted ones (Füller, Hutter and Hautz, 2013, p.248). It further causes learning effects on both sides - for participants as well as organizers. This phenomenon has also been observed in the "Innovation Challenge" conducted by Lufthansa Cargo (Pfeifer and Gebauer, 2013, p.54). Guidance by the organizer of the innovation contest during implementation phase ensures that previously set goals are met at their best. Furthermore, this interaction with participants can be seen as ideal preparation for the assessment phase. Due to the fact that participants have diverse backgrounds, submitted concepts and ideas are often new to the business. An intensive discussion with participants helps to have an established basis for decision-making. Furthermore, potentials and ob- stacles are easier identified together with the participants of the contest and an intensive moderation results in further development of submitted ideas by the community. Heterogeneous price structures, e.g. announcing

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a price for the most valuable comment and not only for the best ideas, en- force co-creation (Füller, Hutter and Hautz, 2013, p.248).

Investing sufficient resources and building an interdisciplinary team for the evaluation of ideas can be seen as key success factors. Integrating diverse persons into the evaluation process helps to identify ideas already been discussed within the company and to evaluate ideas for which expertise otherwise would be missing (Lüttgens, et al., 2014, p.356).

At last, resources and time necessary to conduct an innovation contest should not be underestimated. Innovation contests are classified by Keinz, Hienerth and Lettl (2012, p.24) as a "harvesting user innovation strategy".

The case study presented has shown, however, that the harvest is only as good as the seeds you plant and the care you take during maturity. Follow- ing the presented success factors will enable LSPs to minimize challenges and maximize opportunities in conducting an innovation contest.

5 Conclusion

5.1 Contributions and Implications

The aim of this paper was to evaluate the use of innovation contests in logistics. First, a focus group workshop with logistics managers on expected opportunities and challenges in conducting an innovation contest was hold. Though opportunities in generating innovative solutions as well as positive PR effects exist, this discussion shows that LSPs see challenges due to several unknown components. These challenges are related to the quality of ideas, resources needed, and effects on their reputation. Not knowing where the journey will take the company seems to be a great barrier.

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Second, a deep analysis of the Hermes innovation contest shows how to minimize challenges of innovation contests in logistics and how to profit from positive results. The fuzzy front end of an innovation contest, namely the preparation and initiation phase can thereby be seen as crucial. The case of Hermes has indicated that these early phases have an impact on the effort necessary during later phases of the contest as well as on the output generated.

Logistics can be divided into several subject areas, e.g. distribution and maritime logistics. Each of those requires specific expertise and knowledge. The question within a contest therefore should be articulated goal-oriented and cover a specific field of interest. This will limit broadness of ideas suggested and help in evaluation. An innovation contest can also be used as a source to identify knowledge-carriers.

This paper expands the discussion on innovation contests to the logistics industry. Furthermore, lessons learned were drawn from an in-depth case- study. Resulting success factors will help logistics companies to conduct innovation contests in the future. Besides, the presented success factors will help other logistics companies in deciding on whether to use this open innovation initiative or not.

Though the success factors are derived from an LSP point of view, they seem to be applicable to any service industry, thus emphasizing existing research on innovation contests and expanding discussion on key elements in crowdsourcing processes (Gassmann, Friesike and Daiber, 2014, p.85).

This expansion includes the selection of an adequate platform and setting,

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pre-assessing ideas already during implementation phase as well as the integration of sufficient resources within the evaluation phase (e.g. interdisciplinary team, community assessment).

Compared to innovation contests focusing on tangible goods, especially the domain of logistics seems to require an intensive elaboration and formulation of the question.

5.2 Limitations and Further Research

Contribution and implications were taken from an explorative, qualitative approach which is why the results have limitations.

Though several instruments have been chosen in favor of construct valid- ity, e.g. triangulation of dataset (multiple interviewees and enrichment through content analysis of secondary data), review by key informants as well as external experts, results cannot be generalized, because findings are based on a single case. The reliability of findings is provided by a case study protocol (Ellram, 1996, pp.104ff.). In order to increase external valid- ity, analysis of further cases of innovation contests in logistics is suggested.

The case study presented was focusing on a 2C perspective. Due to the fact that many logistics companies are working in B2B (business to business) context further research should analyze differences between innovation contests in B2B and B2C settings (Kärkkäinen, Jussila and Multasuo, 2012, p.139). Thereby implications for successful implementation of innovation contests in B2B logistics can be derived. While Prandl (2014, p.79) questions the applicability of innovation contests in B2B contexts in general, the Lufthansa Cargo Innovation Challenge has shown that innovation contests in B2B logistics can be successful (Pfeifer and Gebauer, 2013, p.54). First

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comparisons indicate that B2B innovation contests in logistics require much more effort in community building as the group of direct customers is limited and special expert knowledge is sought.

Acknowledgements

This research was partially supported by Hermes Logistik Gruppe Deutsch- land GmbH. We thank Daniela Kirchner and Roger Hillen-Pasedag who provided insight and expertise that greatly assisted the research.

Financial Disclosure

This IGF-project 18082 N of the research association 'Bundesvereinigung Logistik e.V. - BVL', Schlachte 31, 28195 Bremen was funded by the Federal Ministry for Economic Affairs and Energy (BMWi) via the AiF as a part of the program for Industrial Community of Research and Development (IGF) because of a resolution of the German Bundestag.

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The Impact of Industry 4.0 on the Supply Chain

Hans-Christian Pfohl, Burak Yahsi and Tamer Kurnaz

Disruptive innovations are currently changing the landscape of many industries and their business models. Because of increasingly digitalized processes and an expo- nential growth of sensible data, supply chains are also impacted by the fourth industrial revolution. The strategic management requires a more transparent understanding of the currently available and interrelated technologies and concepts. Since the supply chain will obviously undergo an organizational change, a theoretical framework is necessary to understand which activity is impacted from a holistic management-perspective. In this paper, the term “Industry 4.0” is defined and its seven characteristic and interrelated features are highlighted. Furthermore, related technologies and concepts are validated to determine their contribution to the future development of the industrial revolution. Out of initially 49, the 15 most relevant technologies and concepts are identified through a conceptual analysis. A theoretical framework is proposed to evaluate key technologies and concepts with respect to their impact on the supply chain. According to Cachon (2012), three interesting hypothesis are stated, concluding on the impact of Industry 4.0 from a structural, technological and organizational perspective. All results are based on a structured literature review.

Keywords: Industry 4.0, Supply Chain, Organizational Change, Innovation

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1 Introduction

First, the development of steam machines drastically changed the production processes. Electrical drives, combustion engines and the innovative assembly line production systems then initiated the second industrial revolution. The third industrial revolution was mainly characterized by the enormous automation of the production processes (Bauernhansl, ten Hompel and Vogel-Heuser, 2014), which is the basis for the ongoing fourth industrial revolution, where we face complex systems of hardware, data centers and software components in one single product (Brettel, et al., 2014). Traditional barriers for products and their value proposition are ex- tremely extended and therefore, existent value chains and the respective supply chains are to be rethought (Porter and Heppelmann, 2015).

As an early example, General Electric started a billion-dollar-project in 2011 to install sensors in their production-machinery and to invest in product- embedded software (Iansiti and Lakhani, 2015). Whilst many more companies are already investigating how to react to the current trend of implementing “Industry 4.0” technologies and concepts, recent research with respect to this term is highly diverse and limited to the operational implementation of technologies and concepts on the production process-level (Herman, Pentek and Otto, 2015).

Figure 1 visualizes the fact that most scientific papers and articles with respect to “Industry 4.0” can be allocated to cluster A. Here, the research is focusing exploratory questions on how “Industry 4.0” technologies and concepts can be implemented within the company’s supply chain on the process-level (Bauernhansl, ten Hompel and Vogel-Heuser, 2014; Parlikad and McFarlane, 2010).

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Figure 1 Clustering the research-fields with respect to “Industry 4.0”

The confirmatory research in cluster B adds quantitative methods to the analysis and provides implementation models for specific technologies (Mohanarajah, et al., 2015). This paper can be allocated to cluster C, as it widens the horizon of the currently explorative research to the management-level. Based on a structured literature review, a theoretical framework is developed and applied to understand the impact of the fourth industrial revolution on the supply chain from a holistic management-perspective. This qualitative analysis will be the basis for further quantitative research in cluster D, where the hypotheses in this paper can be validated in expert interviews and questionnaires.

All research results given in this paper are based on a structured literature review executed according to Baker (2000) and Cooper (1988). This review includes high-rated international journals which were published since

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2010. The following journals were selected according to the VHB-ranking of Hennig-Thurau (Walsh and Schrader, 2014) and their relevancy with respect to the scientific topic: Management Science, Operations Research, Journal of Management Studies, Organization Science, M&SOM, Transpor- tation Science, Information Systems Research. Other scientific databases like EBSCOHOST were added to sources of the literature review, as currently most of the relevant published articles with respect to “Industry 4.0”

can be found in scientific magazines and lower-rated journals. Studies published by companies (e.g. consulting firms like Roland Berger) or research institutes were validated as well and bring up interesting hypotheses and results, especially in the German literature. The key words were chosen according to the research topic and the included technologies and methods described within this paper. Articles and studies identified by a keyword- search were first validated by their title, their abstract and then by their content with respect to their relevancy. In total, 674 published articles, scientific papers and books were reviewed throughout this analysis.

2 Management Approach

In this chapter, a management approach is proposed that supports the companies to understand which organizational changes are to be expected for their respective supply chain (figure 2).

First, the strategists must make the term “Industry 4.0” and its characteristic features more transparent and communicate a common definition to all company members. At this stage, it is important for all executive members

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of a company to know which levers can be tackled to enable and to stream- line the innovation adoption process in the organization and in the supply chain. Chapter 3 helps the organizations by stating a definition of the term

“Industry 4.0” and highlighting its characterizing features.

Second, relevant technologies and concepts have to be identified, clustered and analyzed by the corporate management according to their relevancy for the company. Chapter 4 brings up a mind-map of all currently discussed technologies and concepts with respect to the research-field of “In- dustry 4.0”. These are clustered into four dimensions and allocated to the earlier described characteristic features. A conceptual selection process is developed and applied to evaluate the relevancy of all technologies and concepts according to the characterizing features of the term “Industry 4.0”. The strategic management of a company may apply the same approach to identify respectively relevant technologies and structures within workshops.

Third, the management needs to evaluate how their supply chain will be impacted by the relevant technologies, i.e. which challenges and potentials are to be expected with respect to the primary supply chain activities.

Chapter 5 proposes a theoretical framework that allows the evaluation of the impact of each relevant technology with respect to their impact on the supply chain from a holistic management-perspective. At the end of chapter 5, three main hypotheses are proposed after executing the analysis for all relevant technologies and concepts.

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Figure 2 Management approach and the relevancy of single chapters

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3 Defining the Term “Industry 4.0”

Since the term “Industry 4.0” is not ultimately defined (Brettel, et al., 2014), this paper states a definition using characterizing features. All currently discussed characteristic features of the term “Industry 4.0” were collected based on the structured literature review and included within a conceptual analysis, in which all mentioned technologies and concepts in chapter 4 were validated with respect to the question: Does this technology or concept enable innovations in the supply chain of an organization according to the specific characteristic feature? For example, the technology of Cloud Computing enables digital processes and value propositions (this means a count for the feature “Digitalization”) and increases the modularization and scalability of products, processes and facilities in the supply chain (this means a count for the feature “Modularization”).

Figure 3 summarizes the results of the analysis for all 49 technologies and concepts. The features marked dark are the most relevant (above 30 counts) and hence, these are used to define the term “Industry 4.0” and are explained in detail. The result leads to the following definition: Industry 4.0 is the sum of all disruptive innovations derived and implemented in a value chain to address the trends of digitalization, autonomization, transparency, mobility, modularization, network-collaboration and socializing of products and processes. In the following, the seven characterizing features are reflected and described in detail.

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Figure 3 Results of the analysis of characteristic features

(1) Digitalization: The companies’ internal processes, product components, communication channels and all other key aspects of the supply chain are undergoing an accelerated digitalization process (Geisberger and Broy, 2012). According to the conceptual analysis visualized in figure 3, the digitalization process itself is the most important characteristic feature and enables all other characterizing features.

(2) Autonomization: “Industry 4.0” technologies and concepts are enabling machines and algorithms of future companies to make decisions and per- form learning-activities autonomously. This autonomous decision-making

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and learning is based on man-made algorithms and enables whole factories and manufacturing facilities to work with minimum human-machine- interaction (Angelov, 2013).

(3) Transparency: While global supply chains are characterized by highly complex structures, the available “Industry 4.0” technologies are increasing the transparency of the whole value creation process. Through this increase in transparency, decision-making in the company will be more col- laborative and efficient. Not only the supply chain processes, but also the behavior of corporate partners and customers will be more transparent to the company (Wang, Heng and Chau, 2007).

(4) Mobility: The dissemination of mobile devices makes communication, data sharing and generation of values possible from all over the world. The mobility of devices is changing the way customers are interacting with companies, and the communication and interaction of machines in the production process (Schweiger, 2011).

(5) Modularization: “Industry 4.0”-technologies are enabling the modularization of products and the whole value creation process, e.g. manufacturing facilities. Modular production facilities can be adjusted in their quantity autonomously, which is increasing the flexibility of the production processes (Koren, et al., 1999; Putnik, et al., 2013).

(6) Network-Collaboration: Just as human beings in our society are interacting in social networks, the companies’ processes will be defined and activities will be decided through the interaction of machines and human beings within specific networks in and out of the companies organizational borders (Bauer, et al., 2014).

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(7) Socializing: The collaboration in networks is enabling machines (not only smartphones) to start communicating and interacting with other machines and/ or humans in a socialized manner. Herewith, the collaboration with machines is socialized, since humans are able to get into a conversa- tion with the machines (Oswald, 2014).

4 Identify Key Technologies and Concepts

The next goal of this paper, and the second step according to the management approach, is to understand the relevance of the many interrelated technologies and concepts discussed with respect to the fourth industrial revolution. For this purpose, a three-step approach was applied. First, a structured literature review was performed to create a mind-map (figure 4).

This mind-map summarizes frequently discussed technologies and concepts within the validated literature and allocates them to the previously identified key characteristics of “Industry 4.0”. As shown in the mind-map, the technologies and methods can be summarized into four clusters according to the highest relevance of the earlier described characteristic features. During the evaluation of a specific technology or method, the corporate management may use this mind-map to understand its interrelations with other technologies.

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Figure 4 Mind-map of discussed technologies and concepts within the relevant literature

Second, all technologies and concepts were conceptually validated to understand whether or not these are enabling the digitalization, autonomization, transparency, mobility, modularization, network-collaboration and socialization of processes and products within the supply chain. Hence, figure 5 sorts all technologies of the mind-map according to the number of the respectively supported characterizing features of “Industry 4.0”.

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According to the analysis of this paper, the most relevant and contributing technologies and concepts are in the far left part of the density-function given figure 5 and are discussed in detail in the following.

Figure 5 Density-function to validate the importance of technologies and concepts of “Industry 4.0”

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A very important technology is the miniaturization of electronics, which means the manufacturing of smaller mechanical, optical and electronic products and devices (Feldmann, Franke and Schüßler, 2010). It is a main enabler for the automatic identification and data collection (AIDC) and ra- dio-frequency identification (RFID) technologies, which help to collect, manage and analyze data within transportation processes in the supply chain (Smith and Offodile, 2002). In fact, AIDC- and RFID-technologies be- long to the so-called embedded systems. These are microprocessor-based systems, which are built into physical products to control a function or a range of functions (Heath, 2002). On the other hand, the field of Robotics is closely related to the miniaturization of electronics as well, as it is the branch of technology that deals with the design, construction, operation, and application of robots (Demetriou, 2011). Machine-to-Machine Commu- nication (M2M) can be described as the autonomous and bilateral communication of machines (Zaus and Choi, 2014).

Business Intelligence (BI) is often referred to as the techniques, technologies, systems, practices, methodologies, and applications that analyze crit- ical business data to help an enterprise better understand its business and market and make timely business decisions (Chen, Chiang and Storey, 2012). Based on the BI-technology, the concept of a Smart Factory increases the information transparency and enables the autonomous control of a manufacturing facility (Radziwon, et al., 2014). When pay-per-use li- censing is applied within smart factories, pricing is based on the actual amount of the used software, measured in units of use, such as the number of users or the number of transactions (Tukker, 2004). The term of the Smart Factory includes the concept of Smart Logistics, which describes the

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application of ubiquitous technologies to logistics processes for efficiency improvements in transport, warehousing and storage processes (Resch and Blecker, 2012). Smart Data, as a related concept, helps to collect, manage and analyze data from across an increasingly complex investment uni- verse. Big Data, the massive collection and storage of data in real-time, be- comes Smart Data when its objective is understood (Klinck, 2014).

5 Impact of Industry 4.0 on the Supply Chain

This paper proposes a theoretical framework to assess challenges to and potentials of the supply chain management arising from the fourth industrial revolution (visualized in figure 6 and 7 below). The vertical dimension reflects the supply chain according to MEYR and WAGNER (2004 cited in Kannegiesser, 2008, p. 14) with the categories procurement, production, distribution and sales. Herewith, core activities in the supply chain are captured. The horizontal dimension is oriented towards the model of LEAVITT (1965, pp. 1144-1170), who has developed a theory with respect to organizational changes and finds answers to the following question: By which variables is the innovation adoption process in a company impacted? Accord- ing to this theory, every organization consists of four interactive and highly interdependent components: people, task, structure and technology. It is the interaction between these four variables that determines the success of organizational changes. While the variable “people” obviously refers to the human domain within an organization, this framework includes all human-related issues, from hiring and education of the personnel to the interaction of the organization in social systems out of the borders of the own

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